April 2 (Bloomberg) -- Alcatel SA agreed to merge with Lucent Technologies Inc., creating a company with a combined market value of $36 billion to compete with Ericsson AB and Cisco Systems Inc.

Patricia Russo, Lucent's chief executive officer, will be CEO, the two companies said today in an e-mailed statement. Shareholders of Alcatel will control about 60 percent of the new company. The board will be composed of 14 people split equally between the two existing businesses. The new company will be based in Paris.

The two equipment makers agreed to combine after being unable to revive sales or their share prices since the technology bubble burst six years ago. The agreement comes five years after the two companies failed to come to terms on a merger. They had combined sales of $25 billion in 2005, less than half their revenue in 1999.

``This is not the industry it was five years ago,'' said Marc Klee, vice president and portfolio manager at American Fund Advisors Inc. in Garden City, New York. ``This is a healthy thing.''

Shares of the Murray Hill, New Jersey-based Lucent, which are 95 percent below their peak in December 1999, have jumped 15 percent this year amid a rally in shares of equipment makers. Alcatel has climbed 25 percent and is at the highest in almost two years.

The acquisition may spark a wave of other mergers. Companies including Nortel Networks Corp., Tellabs Inc. and Ciena Corp. were mentioned by analysts last week as attractive candidates to combine or be bought. They're battling for the $336 billion telecom equipment market as phone companies boost spending to upgrade their networks.

Bell Laboratories

Lucent, whose roots trace back to Bell Laboratories and the invention of the transistor, was spun off from then AT&T Corp. in 1996. SBC Communications Inc. bought AT&T last year and changed the name to AT&T Inc.

Alcatel, a Paris-based supplier of telephone gear for more than a century, has turned around after losing money from 2001 to 2003.

The combined companies surpass Ericsson AB of Sweden with $25 billion in annual sales and challenge Cisco Systems Inc. as the largest supplier of Internet equipment. Alcatel and Lucent posted a combined $43 billion in losses in 2001 through 2003 and their shares are trading at less than they did a decade ago.

The new combination expects to make cost savings of 1.4 billion euros over three years.

Lucent gives Alcatel customers including Cingular Wireless LLC and Verizon Wireless, the top two U.S. mobile-phone providers, and will help the French company triple its sales in the U.S.